According to new research published today from Imperial College London, bitcoin and other cryptocurrencies are the viable “next step” for money and has the potential to go mainstream within the decade.
“New payment systems (or asset classes) do not emerge overnight but it is worth noting that the concept of money has evolved – even in our lifetime – from cash to digital or contactless payments. The wider use of cryptocurrencies and crypto-assets is the next natural step if they successfully overcome the six challenges we set out in our report” said Dr. Zeynep Gurguc, one of the authors of the publication.
The study argues that cryptocurrencies are able to currently satisfy one (store of value) of the three fundamental roles of traditional fiat currency which are:
- Store of value: allowing individuals to make intemporal choices on when to spend their purchasing power
- Medium of exchange: facilitating the exchange of goods and services by eliminating the inefficiencies associated with a barter economy
- Unit of account: acting as a measure of value in the economic system.
The research suggests that these last two criteria require cryptocurrencies to continue to progress through issues of scalability, design, and regulation. Over time, they argue, money has continually evolved and in each case, the new forms replaced the previous ones.
“There’s a lot of skepticism over cryptocurrencies and how they could ever become a day-to-day payment system used by the man on the street. In this research, we show that cryptocurrencies have already made significant headway towards fulfilling the criteria for becoming a widely accepted method of payment” noted Professor William Knottenbelt, an additional author of the paper.
The six challenges that Dr. Gurguc and Dr. Knottenbelt believe for cryptocurrencies must address in order to become a mainstream method of payment are as follows:
- Scalability: many cryptocurrencies are built on blockchains that aren’t designed to facilitate high volumes of transactions at present. The mining community of individual blockchains needs to prioritize solving scalability issues in order to succeed
- Usability: like any invention, user-friendly design is at the core of mass adoption. Cryptocurrencies can be complex and require specialist understanding
- Regulation: this is currently fragmented with different countries pursuing different regulatory routes. Without a standardized global approach to regulation, Bitcoin will struggle to gain mainstream traction
- Volatility: all fiat currencies fluctuate in value. However, current significant volatility in cryptocurrencies hinders their ability to be considered a store of value. As price movements settle the store of value function can be realized
- Incentives: any new financial ecosystem requires careful thinking about how its reward system will influence behavior. If this isn’t built in the right way, then the system will quickly be manipulated by some users to the detriment of others
- Privacy: while blockchains provide a transparent single source of truth, different levels of privacy available to different users is often attractive. Without this, some people will stay away from cryptocurrencies
The commissioner of this research, Iqubal V. Gandham, believes that even with the barriers in place, the mainstream adoption of cryptocurrencies is imminent.
“The first email was sent in 1971, but it took nearly three decades for the technology to become commonplace with a user-friendly interface in the form of hotmail. The first ever Bitcoin transaction took place a little over eight years ago and today we are already seeing it begin to meet the requirements of everyday money. Given the speed of adoption, we believe that we could see Bitcoin and other cryptocurrencies on the high street within the decade. There are of course barriers to mainstream adoption, but they are far from insurmountable.”